Equities Remain Resilient – Domestic Equity Update

Equities rebounded in the second quarter, with all eleven sectors of the S&P 500 Index positive for the quarter. Sectors with the most advancements included consumer discretionary, energy, materials and technology. Economists and analysts believe that the upswing in these sectors is representative of an economic recovery, yet hinged on the risk of a second outbreak wave.

The technology heavy Nasdaq Index has outperformed the S&P 500 and the Dow Jones Industrial Index both year to date and for the second quarter. Some stock analysts believe that the disparity in performance is reminiscent of the dot-com expansion 20 years ago. (Sources: S&P, Nasdaq, Dow Jones, Bloomberg)

Rates Stabilize In June – Fixed Income Overview

Federal Reserve buying of debt securities continued in the second quarter under the Secondary Market Corporate Credit Facility program, which was established to maintain liquidity in the bond markets. Individual corporate bonds and ETFs have been part of the Fed’s buying program, which was launched in mid-June. Bonds purchased so far include debt issues from both investment grade and non-investment grade rated companies.

Corporate and government bonds continued to post positive returns in the second quarter, as yields stabilized following the dramatic drop in yields during the first quarter of the year. The benchmark 10-year Treasury bond yield closed at 0.66% at the end of June, helping to boost consumer lending and mortgage rates. (Sources: Treasury Dept., Federal Reserve, Bloomberg)

Unemployment Hits Young Workers Hardest – Labor Market Overview

Unemployment has hit younger workers the hardest, with roughly 25% of workers ages 16 to 24 losing their jobs from February to May due to the virus outbreak. Traditional sectors employing mostly younger workers, such as leisure, hospitality, and restaurants, have suffered dramatic drops in business activity since the outbreak.

Current conditions brought about by the pandemic have made it even more challenging for high school and college students, as well as graduates, to find short term and summer job positions.

Younger workers 16-19 years of age are experiencing unemployment rates as high as 30%, more than double the rate this same time last year. Teenagers are seeing nearly triple the amount of unemployed compared to all other age groups nationally, which is 11.1% unemployment as of the most recent data reported by the Department of Labor. (Sources: DOL, BLS)

Fed Main Street Loan Program – Stimulus Program Overview

In addition to the stimulus loan programs brought about by the CAREs Act, the Federal Reserve has introduced its own stimulus program known as the Main Street Loan Program.

The program is designed to help credit flow to small and medium sized businesses that were in sound financial condition before the onset of COVID-19, and are recovering from, or adapting to, the impacts of the pandemic. The program offers 5-year loans, with floating rates, and deferred principal and interest payments to assist businesses facing temporary cash flow interruptions. Loans range in size from $250,000 to $300 million, offering a wide range supporting a broad set of business entities. Different from PPP loans, Main Street Program loans are not grants and can’t be forgiven.

The Fed is participating in the lending process by taking a 95% interest in the loans issued, while lenders retain 5% of the loans. The unusual tactic of taking an interest in the loans allows the Fed to actually assume a risk in the loans issued. Businesses can inquire about eligibility for a Main Street Program loan by accessing the Fed’s link https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm. (Source: Federal Reserve Bank of Boston)

Small Business Loan Program Still Has Funds – Stimulus Program Review

Three months following the administration’s launch of pandemic relief programs, major debates have arisen in response to the remaining surplus of undirected funds in conjunction with the Paycheck Protection Program (PPP). The program was established to assist small businesses with critical funds in order to remain in business during the pandemic.
 
PPP loan measures have been taken and proposed by congressional members considering the excuse of loans $150,000 or less, which represents nearly 85% of all PPP loans, in order to minimize the burden while utilizing a minimal proportion of the Paycheck Protection Program’s overall expenditure.

After the Small Business Administration’s approval of increased loans, the program’s outlays are the largest financial outlay within COVID-19 spending. Loan applications have shown promising results to nearly 81% of PPP loan applicants, many reporting having already received the funds.

Unless extended by Congress, the Paycheck Protection Program stopped accepting new loan applications on June 30, 2020. As of June 12, 2020, the SBA reported that over 4.5 million PPP loans had been approved, with an average loan amount of $113,000. (Sources: SBA, congress.gov, NFIB)